Testimony of 

Larry R Cook, CPA, ABV, CFF, CBA 

Before the 

United States Department of Labor 

Employee Benefits Security Administration 

Regarding the 

Proposed Definition of Fiduciary 

March 2, 2011 

                Larry R Cook & Associates, PC 
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Larry R Cook ‐ DOL Testimony March 2, 2011 

Thank  you  for  allowing  me  to  provide  testimony  today  at  the  Department  of  Labor 

Fiduciary  Definition Hearing.      I  can  only  hope  that my  testimony,  along  with many 

others opposing the proposed definition expansion of fiduciary to include appraisers, 

will provide the catalyst for reassessment and overcome this rule change. 

 It is with strong conviction that I come to Washington today compelled to respectfully 

oppose  the manner  the  fiduciary definition rule seeks  to strengthen  the reliability of 

ESOP valuations. In my opinion, if this definition of  fiduciary prevails it will spell the 

demise  of  small  company  ESOPs.    It  will  force  a  substantial  number  of  qualified 

appraisers to end their services to ESOP’s.  

I think it important that my testimony come from my direct personal knowledge and 

experiences  from  several  career  perspectives  of  which  I’ve  served  for  the  past  38 

years.   

• I  was  out  of  college  2  years  and  an  officer  of  a  small  private  construction 

company when ERISA became law in 1974. 

• As part of the succession plans of the then sole shareholder of this company, I 

researched,  recommended  and  assisted  in  implementing  a  new  retirement 

plan called an ESOP. 

• At  age  27  I  became  a  beneficial  stockholder  of  the  company  I  worked  for 

through the Employee Stock Ownership Plan.  

• I  served  as  a  plan  administrator  for  the  ESOP  and  a  long‐standing  profit 

sharing plan. 

• When I left that company after nearly 11 years of service, I was fully vested in 

both plans. 

• As a result of my activities with this ESOP, I chose a career path of a business 

appraiser. 

• Over the next decades, I have worked with business owners and management 

of private businesses in a variety of successful engagements that included the 

implementation of employee equity initiatives and ownership through ESOPs. 

• For the past 28 years, I’ve provided business appraisals for ESOP’s. 

• I  have  served  several  appraisal  organizations  at  the  national,  state  and  local 

level. 

• I’ve authored a book  “Financial Valuation of Employee Stock Ownership Plan 

Shares”,  

• I’ve co‐authored a technical valuation book “Financial Valuation – Applications 

and Models” with James R Hitcher & Others 

I believe in the ideals of capitalism and that all employees can share in the opportunity 

to be enriched through a beneficial ownership of equity in the very company in which 
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we work.  In a system where a shareholder of a private company has a mechanism of 

passing their equity shares to employees for their retirement. On numerous occasions, 

I have experienced the incentivizing power of a well‐implemented and managed ESOP.  

I’ve witnessed the overwhelming strength an ESOP provides to every single person in 

a company... from janitor to engineer.... to participate as an owner of that company.  I 

have lived the American dream of company ownership and spent a career promoting 

its benefits to others. 

This  is  why  I’ve  traveled  to  DC  today  to  represent  not  only  for  myself,  but  the 

collective views of the valuation members of the Financial Consulting Group, the Loren 

D  Stark  Company,  and  a  voice  of  many  company  shareholders  and  employee 

participants, in hopes of providing a perspective that will assist in the continuation of 

that aspiration of widespread employee equity ownership.  

In an attempt  to minimize repetition and  the interest of  time, I hope  to convey  three 

straightforward points that this change in definition brings: from a plan, a participant, 

a sponsor, a fiduciary and an appraisers perspective. 

Number 1 ‐ Risk, 

• In  the  proposed  rule  change  context,  the  appraiser  will  be  held  personally 

responsible  for  any  damages  incurred  by  a  plan  participant  as  a  result  of  a 

breach of duty;  

• As  it  stands  today,  without  the  proposed  rule  change,  I  wonder  what  my 

responsibilities will actually be? 

o Will this duty extend to acts of management of the company? 

o Will corporate and participant transactions entail a duty? 

o What and how is control over the plan assets extended to the appraiser? 

o Will the appraiser be held liable for the actions of co‐fiduciaries? 

o Who could bring an action against the appraiser in this context? 

o What  actually  is  the  statue  of  limitations  of  responsibility  of  the 

appraiser?  

Looking back 30 years, I can’t help but ask myself, if informed with the certainty of my 

person  and  profession  being  exposed  to  this  level  of  risk  and  liability  as  currently 

proposed  in  this  definition  change,  I  would  undoubtedly  have  chosen  a  different 

career path. 
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Number 2 ‐ Conflicts of Interest  

• The  appraiser,  in  the  context  of  the  proposed  rule  change,  will  act  solely  on 

behalf  of  participants  and  their  beneficiaries  with  undivided  loyalty.    In 

reflecting on the proposal, I’ve asked myself, these among others? 

  

o Will the duty of the appraiser be likened to a power of attorney, where 

decisions are to be made solely on a principal’s behalf? 

o How will the appraiser exercise discretion or control over the plan and 

the administration of benefit to participants? 

o How will  the appraiser satisfy  the professional ethics and standards of 

the  appraisal  societies  with  which  they  are  members  where  this 

proposed  definition  change  runs  in  direct  contradiction  of  those  core 

standards?  

How  very  different  this  is  than  where  appraisers  practice  today!    And  how  the 

conflicts  of  interest  landscape  will  change  should  this  proposed  definition  rule  be 

confirmed and allowed to stand.  I come back to the same conclusion; this proposal is 

incompatible with the realities of professional standards and the practice of financial 

valuations. 

Impartiality, objectivity & independence collectively spell professional neutrality and 

speak  to  those  foundational standards  that anchor  the appraisal profession  for all of 

us.  The proposed  rule will pose an uncompromising risk and conflict of interest  for 

appraisers and the users of their services. Appraisers will no longer be independent or 

impartial  of  all  parties  at  interest  involved  in  transactions  or  annual  valuations  for 

participant’s accounts.  A sobering reality for us all to be aware of. 

Number 3 ‐ Cost, 

Why  is  it  that  professional  liability  insurance  is  so  specific to  exclude  coverage  for 

fiduciary responsibility and more specifically those related to ERISA?  

• We  know  that  the  cost  of insurance will increase  the  cost  for ESOP  valuation 

services  and  any  increase  in  costs  to  a  plan  or  the  sponsor  of  the  plan  will 

negatively impact the plan participants. 

• In  this  proposed  rule  context,  appraisers  will  assess  the  potential  cost  of 

exposure to an expanded litigation environment.  

• Additionally, regardless of the appraisers insurance coverage or the merits of a 

litigation  filing,  the  added  risk  factors  will  necessitate  the  appraisers 

consideration  of  expenditure  for  deductibles,  energies  furnishing  documents 

and the disruption of services on other engagements. 

Without wide spread, reasonably priced professional liability coverage that extends to 

cover  the  appraiser  as  a  fiduciary,  few  professional  appraisers  will  assume  the 
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personal liability. Additionally, and assuming adequate liability coverage is afforded, 

there  remains  the  haunting  cloud  of  expanded  litigation  defense  of  the  appraisers 

work  product  not  to mention  this  proposal  runs  foul  of all independence  standards.  

The  proposed  rule  will  impose  costly,  unnecessary  and  unrealistic  burdens  on 

appraisers and the plans they service. 

As my  friend  from Houston, with over 50 years experience with  thousands of ERISA 

plans – Donald Stark of The Loren D Stark Company said; “The single largest expense 

to  a  small  ESOP  is  the  cost  of  the  appraisal.      Should  this  DOL  fiduciary  proposal 

prevail, it will undeniably increase  the cost of an appraisal and  that alone will signal 

the end of the small ESOP”. 

Finally: 

Painting  a  picture  of  the  existing  climate  of  private  business transitioning  from  one 

generation to another, we are in the midst of the baby boomers that own closely held 

companies  transacting  their  equity  ownership.  The  next  eight  years  or  so  will mark 

the most significant transitioning by selling, gifting, contributing, or liquidating of non‐

public company ownership perhaps in our countries history.   It is the time where the 

option of transitioning private company equity to the next generation can be made in 

whole  or in  part  using an  ESOP as  the  transition  of  choice  for those  companies  that 

have a work force and management that possess the “think like owners” culture to do 

so.   

Because  of  the  level  of  personal  liability  that  will  be  imposed  on  appraisers,  the 

significant cost increase  to  the appraiser and  further  to  the ESOP, and  the conflict of 

interest posed under this proposed rule, I respectfully, but vehemently disagree with 

this potential rule. 

With my years of professional experience involved in ESOPs and their valuations, it is 

my  professional  and  personal  belief  that  this  proposed  rule  will  be  the  nail  in  the 

coffin for small ESOPs.  

I plead with  the Department of Labor  to reconsider  this proposal as against  the best 

interest of ESOP’s and their participants. 

This concludes my testimony and I again thank the Department of Labor for allowing 

me to be here today. 

Testimony of Larry R Cook, CPA, ABV, CFF, CBA 

March 2, 2011 – 10:15 AM EST 

Larry@LCook.com

Larry R Cook & Associates, PC 

13231 Champion Forest Drive – Suite 201 

Houston, Texas  77069 

281‐893‐2255 (O)